I confirm that the facts set out in the plaintiff's amended statement of claim, further and better particulars of amended statement of claim, amended defence to counterclaim and further and better particulars of amended defence to counterclaim are true and correct.

The District Court action was entered for trial in 2006 and has been listed for a pre-trial conference on Wednesday, 3 October 2007, while the defendants have recently made an application for security for costs against the plaintiff some 5 1/2 years after the plaintiff's claim was commenced in the commercial tribunal and more than 3 years after the action was remitted to the District Court, which application has yet to be listed for hearing.

I have recently instructed the plaintiff's solicitors to apply to amend the plaintiff's statement of claim in the District Court action to claim that the plaintiff was not in breach of its obligation to pay rent in that the defendants failed to account for payments made by the plaintiff, that rental was not payable until the liquor licence was capable of operation by the plaintiff, being a date after that for which the defendants claimed rent, to include a claim for unjust enrichment as a result of the plaintiff's improvements to the leased premises and to include a claim for damages of $27,000.00 representing the loss of the business acquired by the plaintiff. Annexed hereto and marked 'D' are copies of two receipts totaling $27,000.00 paid to purchase the business.

5 The appellants filed an affidavit of Mr H J Ginbey sworn 29 October 2007 referring to evidence which might lead to a dismissal of the respondent's claim. The solicitor for the respondent, Mr B Wheatley, also filed an affidavit confirming amendments to the statement of claim foreshadowed in Mr O'Sullivan's affidavit referred to above. The respondent filed a second affidavit of Mr O'Sullivan on 27 November 2007, providing some evidence to counter the evidence raised in the affidavit of Mr Ginbey and providing particulars of the way the $27,000 was spent on the premises.

6 The statement of claim pleaded that the respondent purchased a restaurant business from a Mr Yap and took an assignment of lease from Mr Yap and a Mr Tan, with the consent of the appellants as lessors, and did so in reliance upon representations that, in return for the respondent undertaking alteration and renovations upon the leased premises, the appellants would reimburse the respondent for the cost of such alterations and renovations at the rate of $1,000 per month, free of interest, and to be by way of offset against any rental moneys due and owing from month to month. The statement of claim alleged that after the purchase of the restaurant business, the entry into the assignment of lease agreement and after work was carried out on alterations and renovations, the appellants served a default notice on the respondent alleging failure to pay rent in an amount of $2,985.41. The plea was that the calculation did not take the alleged agreed offset into account.

7 The appellants deny that any representation was made. They made no application for summary judgment. The appellants did not obtain an order striking out the statement of claim on the ground that it disclosed no reasonable cause of action. The District Court Action is set down for trial in early December 2008.

8 The acting master held that there was a genuine offsetting claim within the meaning of s 459H. There is no dispute about the relevant principles of law. A mere assertion that there is an offsetting claim is not enough. An offsetting claim must be a genuine claim. That is, it must not be 'spurious, hypothetical, illusory or misconceived'. See Edge Technology Pty Ltd v Lite-On Technology Corporation [2000] NSWSC 471; (2000) 156 FLR 181 [25] (Santow J). The threshold presented by the test to set aside a statutory notice does not require rigorous and in-depth examination of the evidence relating to the offsetting claim (Edge [45]). The mere fact that proceedings have been initiated does not foreclose an examination of the claim to see whether there is a genuine offsetting claim (Edge [47]).

9 In this case, Mr O'Sullivan confirmed the material facts pleaded in the statement of claim. The appellants in effect contended that the alleged offsetting claim was not genuine.

10 The appellants contend that the acting master erred in concluding that the respondent's claim was genuine because the District Court Action was insufficient, in itself, to determine whether the claim was genuine, the respondent's conduct during the course of the lease was inconsistent with the claim now being made, the timing of the claim gives rise to a suspicion that it was introduced for tactical reasons, and no contemporaneous document discovered supports the claim which, when viewed with the form of the pleading, should have led the acting master to conclude that the claim was not genuine. The appellants also contend that the acting master erred in finding that there was sufficient evidence to show that the respondent had suffered loss of $27,381 and that the master erred by relying on affidavit material filed outside the 21-day period set in s 459G of the Corporations Act.

11 For the purpose of determining the appeal, we make the assumption that the appellants' grounds of appeal could be made out. However, if the grounds were made out, this court would have to reconsider the matter and make the decision which should have been made by the acting master. Because this is an appeal by way of rehearing, the court makes that decision based on the situation as it now is. That raises the question as to whether this court should so close to trial, decide whether it was satisfied that the offsetting claim was genuine. It is not in the interests of justice to undertake that exercise when in less than a month (in early December 2008) the District Court is scheduled to hear the District Court Action and determine not merely whether the respondent's claim is genuine but whether the respondent can prove it to the civil standard of proof, after hearing all the evidence the parties wish to lead.

12 Section 459J(1)(b) of the Corporations Act provides that the court may, by order, set aside the statutory demand if there is some 'other reason' why the demand should be set aside. There is an 'other reason' why this court should set aside the demand. It is the reason already given, namely that it is not in the interests of justice for this court to analyse the genuineness of the respondent's claim so close to the time the District Court Action is to be decided on the merits, and in circumstances where the appellants did not seek to expedite the hearing of the appeal, did not apply for summary judgment in the District Court Action and did not obtain an order striking out the statement of claim.

13 For those reasons the court dismissed the appeal.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DURKAN -v- SANDBANK HOLDINGS PTY LTD [2008] WASCA 249 (S)

MONIKA DURKAN as Administrator of the Estate of the late MARTIN DURKAN

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Appellants to pay the respondent's costs of the appeal

1 REASONS FOR JUDGMENT OF THE COURT: After the court dismissed the appeal, the question of costs was reserved for decision. The parties were granted leave to make written submissions. Written submissions filed by both parties have been considered by the court. The appellants submit that each party should pay their own costs. The respondent submits that costs should follow the event.

2 The appeal in this case was dismissed, not because the court concluded that the acting master erred or was correct, but because there was an 'other reason' for dismissing the appeal. There were a number of factors leading the court to that conclusion. One was the imminent trial in the District Court which was to decide the merit of the offsetting claim which the respondent had raised by way of counterclaim. Other factors were that no application had been made in the District Court for summary judgment and no application had been made to expedite the hearing of the appeal.

3 Those factors are all important in relation to the question of costs. The first factor was the failure of the appellants to apply for summary judgment in the District Court. If, as the appellants contend, there was no genuine offsetting claim, then an application for summary judgment was likely to have succeeded. Such an application could have been made and determined in 2004 or early 2005, which was long before the appellants prepared its statutory demand dated 14 September 2007. Because the appellants did not apply for summary judgment, other steps were taken and costs orders made, in relation to which the statutory demand was issued. The appeal against the acting master's decision to set aside the statutory demand was not then made the subject of any application for expedition. The result was that this court was called to make a decision about whether the offsetting claim was genuine (but not to determine the claim) within about a month from the date of trial in which the merit of the offsetting claim would be upheld or dismissed.

4 As a result, costs should follow the event. The appellants should pay the respondent's costs of the appeal to be taxed.